Deriving and exploring behavior segments within a retail loyalty card program

Abstract

PurposeDespite the proliferation of retail loyalty programs, little is known about differences in the behavior patterns of the consumers within them. There may be several unique segments within a loyalty program, and significant managerial implications may accrue from identification of these segments and analysis of differences among them. This paper aims to investigate the potential for deriving meaningful, managerially relevant customer segments within a retail loyalty‐type program.Design/methodology/approachData from the one‐year test of a retail loyalty card program by a major US retailer were used to derive patronage‐based segments and explore determinants of segment differences and strategy implications. A numerical taxonomy process was used to group 57,650 loyalty‐card program members into distinct segments. Cluster analysis was used to generate a range of potential market structures on a set of managerially relevant variables. The most appropriate market structure was selected using scree testing and discriminant analysis. Each of the resulting six segments was named profiled. Finally, a set of patronage‐related variables was regressed on to the clusters using multinomial logistic regression.FindingsThe results indicate that, at least for this card program, clearly defined segments with unique patronage profiles do exist both descriptively and statistically; only a small percentage of loyalty card program members demonstrate behaviors that can be considered truly loyal; and different marketing strategies appear appropriate to try and increase patronage among the segments based on their profile characteristics.Originality/valueThis study should prove valuable to academic researchers as well as managers. It is the first effort to generate meaningful, rigorously derived segments within a large loyalty program. It shows that behavioral variables can yield managerially relevant segments, and that the segments appear to call for individualized strategy initiatives.

Loyalty Programs: Generalizations on Their Adoption, Effectiveness and Design

“…Heavy buyers, particularly those with high levels of attitudinal commitment, have the strongest motivation to enroll in an LP because they can reap the most benefits from the program without having to change their purchase behavior or substantially increase their effort (Demoulin and Zidda, 2009;Dholakia, 2006;Kivetz and Simonson, 2003;Mauri, 2003;Stauss et al, 2005;Wright and Sparks, 1999). Although the percentage of such members among all consumers is low (6%-12%), they exert a strong influence on new member enrollment through social interaction, such as word-of-mouth recommendations (Allaway et al, 2003(Allaway et al, , 2006. Recognizing the LP member's ability to attract new customers, US online skin-care retailer Cleopatra's Choice launched their Referral and Loyalty Program which rewards members for each new customer they bring, in addition to the usual LP rewarding based on spending.…”

“…However, by encouraging enrollment, firms may also encourage customers to participate in multiple LPs and divide their purchases across competitors, which results in lower LP usage after enrollment (Allaway et al, 2006;Mauri, 2003;Uncles et al, 2003).…”

A proposal for a new system of classification for hotels based on information taken from a multi-sponsor loyalty program

“…It is complex to develop research to collect data representative of a large sample of consumers who can collectively assess all offers made by hotels. However, in the context of a loyalty program, the information available in a multi-sponsor database regarding hotels and their guests makes it feasible to propose, as an objective, the provision of a representative system of classification for hotels based on the criteria and perceptions of users (Allaway et al 2006). This proposed system of classification will allow the potential mismatch between supply and demand in the Spanish hotel services market to be highlighted.…”

Loyalty Programs Effectiveness

“…According to the criterion of the form of a loyalty program is distinguished by the following types (Kwiatek et al [16], pp. 323-324): 1) programs based on the idea of participation (clubs): a) pure clubs:  based on a loyalty card (card recognition) that provides a discount when purchasing products or services provided by the company organizing the club,  based on the added value of the brand,  operating on the basis of membership fee, b) mixed clubs:…”